It is now becoming more common for parties to take action against their solicitor for defective Binding Financial Agreements, where the agreement, prepared for the express purpose of protecting their assets from their former partner making a property settlement claim against them post separation, fails to do so. Time limitation periods apply to such actions.
A recent decision of the Victorian Court of appeal addressed a professional negligence claim by Ms Orwin against her former solicitor Mr Rickards in relation to preparation of a defective Binding Financial Agreement.
In the court of appeal decision, the Court made some important comments in relation to time limitation periods and pointed out where the law remains uncertain.
The Court has also raised some questions about the utility of a binding financial agreement in its ability to protect assets acquired after separation.
Orwin & Rickards – Limitation periods for defective financial agreements
The Facts
Ms Orwin entered into the Financial Agreement in 2010 to protect her assets from Mr Sarah, including an inheritance she expected to receive from her mother in the future. Mr Rickards, the solicitor who acted for her in relation to drafting of the agreement, prepared the agreement under Relationships Act 2008 (vic) and not the Family Law Act, despite the fact that the de facto provisions of the Family Law Act had commenced prior to signing of the Financial Agreement.
The parties separated in 2011. Importantly, Ms Orwin’s inheritance was received after separation.
In 2015, Mr Sarah commenced proceedings for property settlement in the Federal Circuit Court, seeking to set aside the financial agreement on the basis of duress, non-disclosure, undue influence and unconscionable conduct and sought property settlement orders under 90SM of the Family Law Act.
The Financial Agreement was held not to be valid as it had been entered into under the incorrect legislation.
Ultimately, the property settlement application resolved by consent with Ms Orwin paying Mr Sarah $550,000.
Ms Orwin then commenced proceedings in the Supreme Court of Victoria against Mr Rickards claiming breach of duty of care in relation to preparation of the Binding Financial Agreement. Ms Orwin argued that if the BFA had been properly prepared it would have protected her from the family law claim and she would not have had to pay Mr Sarah the sum of $550,000 or the costs of the family law proceedings. She also claimed damages for the costs paid to Rickards for preparation of the BFA in 2010. In the alternative, Ms Orwin argued that as a result of Mr Rickards breaching his duty of care, she had been deprived of the opportunity to enter into a valid financial agreement.
Mr Rickards joined counsel briefed to advise on the draft financial agreement arguing that even if the Financial Agreement had been prepared under the Family Law Act it would not have been an effective/complete bar to property settlement proceedings brought by Orwin’s former partner due to the parties not being in a de facto relationship at the time it was entered into and because it was probable that financial agreement would have been set aside on other grounds advanced by Mr Sarah including non-disclosure, and further, because the Agreement could not have extended to protection of the inheritance received by Ms Orwin after separation. Mr Rickards also argued that the claim was also statute barred as it had been more than the permissible 6 years since the cause of action accrued, on the basis that the time limit of 6 years under section 5 of the Limitation of Actions Act 1958 (Vic) commenced on the date the defective agreement was entered into.
Orwin argued that the time limit commenced when the de facto relationship ended and the other party brought a claim under the Family Law Act.
The Decision
In Orwin & Rickards [2019] VSC 375, the Court held:
- The BFA was not binding. Mr Rickards did not properly draft the Agreement to a standard consistent with his duty to Ms Orwin;
- The BFA failed to establish that the parties were in a de facto relationship, despite the financial agreement recording they were.
- Ms Orwin did not file her claim within the period required by the Limitation of Actions act and so the claim against the husband failed as it was statute barred;
- In making this decision the Court considered the case of Winnote which involved defective legal advice in relation to a lease. The court held in that case that the plaintiff suffered damage as a result of the solicitor’s advice at the time the lease was secured because the bundle of rights the lease provided for was inferior to that which it would have obtained if properly advised. In this case, Orwin was not only seeking damages for contingent loss upon commencement of property settlement proceedings, she was also seeking damages for immediate loss as a result of the fees paid to her solicitor. The Court held that Ms Orwin sought to acquire property rights by entering the agreement. It was the failure to acquire these rights which gave rise to the possibility of contingent loss. Given the financial agreement was worthless it gave rise to immediate loss and the fees paid to Mr Rikards in 2010 were damages for negligence, and as a consequence, her negligence claim was issued out of time. Like in Winnote, the court held that the fact that the quantum of damages had increased materially thereafter was irrelevant.
- Other errors would have rendered the BFA voidable anyway that were not solicitors fault including non-disclosure and undue influence such that Orwin would have incurred court costs anyway and even if the Financial Agreement had been upheld he would have only awarded her 30.7% quantum of damages if had succeeded in her claim.
- Regarding the post separation inheritance, the Court held that the Financial Agreement could not have excluded from the property claim an inheritance received by Orwin after the de facto relationship had terminated, as it was after separation. The Court referred to Bonnici and said it is not protected property because its an inheritance and referred to Calvin & Mctier that the court retains discretion as to how to treat after acquired property. There was difficulty for Orwin in this case as she provided evidence to the Court in the previous proceedings that Mr Sarah had provided daily care to her mother over the years.
As Ms Orwin had not filed her claim within the limitation period required, and given she had failed to establish that at the time the parties entered into the Financial Agreement, they had been in a de facto relationship, her claim against the solicitor was dismissed.
On Appeal – Orwin & Rickards [2020] VSCA 225
Ms Orwin appealed challenging the Trial Judge’s findings on the following grounds:
Error 1: It was an error for the Trial Judge to determine the parties were not in a de facto relationship in 2010.
In this regard, the Court noted that Ms Orwin had given evidence in the family law proceedings that she and Mr Sarah were not in a de facto relationship at the relevant time. The Court held that her evidence was unimpeachable and there was no basis for her to challenge the factual finding on this basis.
Error 2: It was an error for the Court to find that the time limitation had lapsed for her to commence negligence proceedings
Ms Orwin argued there was no legal basis to recover the costs paid to Mr Rickards in July 2010, as damages for negligence. Ms Orwin relied on the analysis in Wardley Australia Ltd v Western Australia (1992) 175 CLR514 and said that no actual loss was suffered by her until the de facto relationship ended and Mr Sarah made a claim against her pursuant to the Family Law Act 1975.
The Court of Appeal reviewed the authorities and said that the classification of loss in the case was “a question of real difficulty” and could see ‘real force’ in the argument that the loss suffered by Ms Orwin other than the payment of fees to Mr Richards was a contingent loss at the time the Financial Agreement was entered into.
The court made the following comments:
- either approach regarding the commencement of the time limitation was correct being the ‘damaged asset’ with the time limitation commencing immediately on receipt of the defective Financial Agreement OR the ‘contingent loss’ with limitation starting when proceedings were issued by Mr Sarah to set aside the Financial Agreement.
- The second characterisation of the ‘contingent loss’ approach was reasonable in the circumstances as it was unreasonable to expect Ms Orwin to have commenced proceedings when she had no reason to believe Financial Agreement was defective and that Mr Rickards was negligent.
Ultimately the appeal was rejected as the Court held that the decision as to the commencement of the time limitation was secure based on the findings in the Winnote case.
The Court said however that it was unsatisfactory that the same set of facts could be open to alternate legal characterisations as the characterisation produces very different answers to the time limitation question. The Court noted that the degree of uncertainty was regrettable and left the door open for other cases to distinguish or for the High Court to determine this issue.
What does this mean if I have a defective binding financial agreement?
The Decision in Orwin & Rickards applies equally section to 90UC, 90UB, 90B and 90C agreements.
The decision raises more questions than it answers in respect to time limitation periods that apply to instituting negligence proceedings against a solicitor for preparation of a defective Financial Agreement.
Furthermore, depending on the wording of your Financial Agreement, the decision raises a concern as to how to protect after separation acquired assets and whether a Financial Agreement can achieve this goal. Having regard to this decision, it may very well be that a party can still seek that post-separation assets be divided between the parties pursuant to the principles set out in the Family Law Act 1975, rather than as set out in the Financial Agreement.
If you have a question in relation to a Financial Agreement that is defective, and your right to pursue a claim against your former lawyer, contact us to book a reduced rate appointment with one of our Brisbane Family Lawyers to have a confidential discussion about your individual circumstances.
